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Potential VAT Refund For Hoteliers

Operators with letting bedrooms may be able to claim a VAT refund from HMRC in respect of VAT paid on deposits for “no show” reservations.

The European Court of Justice in the case of Societe Thermale D’Eugenie Les Bains distinguished between retention of a deposit where a service was supplied to a customer and the retention of the deposit when it was effectively compensation for the breach of contract when the individual did not take a reserved room.

Although the European case was determined earlier in the year, HMRC have only recently amended the guidance on its website and this clarifies the basis upon which refund applications can be made.

For the detail on valid claims, please see VATSC42200 (link), but in essence there is a distinction between “reservation guarantees” and “guaranteed rooms”.  The former is where the initial payment acts as a form of security and confirms that accommodation will be made available, but not the actual room which will only be allocated once the customer arrives at the Hotel.  In this instance the Hotel is merely confirming that it will provide the agreed standard of accommodation required if the customer fails to attend, then the deposit is retained to mark the conclusion of the contract and provides fixed compensation for the Hotel for the breach of contract, so no supply of services and no VAT due.

This is distinguished from the “guaranteed rooms” reservations, in which the Hotel retains availability of the room for the individual until the check out time the next day, whether the customer arrives or not and generally relates to bookings where a specific category of room is requested.  The Court ruled that this is a supply of service - keeping the room available and is therefore subject to VAT.

We are not specialists in VAT Law, we would recommend that you seek advice from an Accountant as to how this may apply to you.  A back claim can be made, so the sooner you act the more you may be able to recover.  If you need further assistance Grant Thornton VAT advisors will be able to assist you, please call Carol Varnf on 0114 2553371.